Reference no: EM132419440

Problem:

Green Tree Co, acquires 70 percent of Spinner Inc. for $420,000. The remaining 30 percent of Spinner's outstanding shares continue to trade at a collective value of $174,000. On the acquisition date, Spinner has the following accounts:

Book Value  Fair Value

Current assets $210,000   $210,000

Land  $170,000    $180,000 

Buildings  $300,000    $330,000 

Liabilities  $(280,000)   $(280,000)

The buildings have a 10-year remaining life. In addition, Spinner holds a patent worth $140,000 that has a five-year remaining life but is not recorded on its financial records. At the end of the year, the two companies report the following balances:

Green Tree Co. Spinner Inc.

Revenues $(900,000) $(600,000)

Expenses  $600,000   $400,000 

Required:

Question 1: Assume that the acquisition took place on January 1. What figures would appear in a consolidated income statement for this year?

Question 2: Assume that the acquisition took place on April 1. Spinner's revenues and expenses occurred uniformly throughout the year. What amounts would appear in a consolidated income statement for this year?